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Simple English definitions for legal terms
market-out clause
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A quick definition of market-out clause:
A market-out clause is a part of a contract in the oil and gas industry that allows the buyer of natural gas to reduce the purchase price if market conditions make it too expensive to continue buying at the agreed-upon price. The seller can then choose to accept the lower price or cancel the contract altogether. This clause often refers to competing fuels like fuel oil and is also known as an economic-out clause.
A more thorough explanation:
A market-out clause is a provision in a contract that allows a buyer to lower the purchase price of a product if market conditions make it too expensive to continue buying at the agreed-upon price. This clause is commonly used in the oil and gas industry, where the price of natural gas can fluctuate greatly depending on market conditions.
For example, let's say a pipeline company agrees to purchase natural gas from a well owner at a fixed price for a certain period of time. However, if the price of natural gas drops significantly due to increased supply or decreased demand, the pipeline company may activate the market-out clause and request a lower price. The well owner can then choose to accept the lower price or cancel the contract altogether.
Market-out clauses can also refer to competing fuels, such as fuel oil. In this case, if the price of fuel oil drops significantly, the pipeline company may activate the market-out clause and request a lower price for natural gas.
Overall, market-out clauses provide flexibility for both buyers and sellers in volatile markets, allowing them to adjust prices to reflect changing market conditions.